Carter-Wallace launches Felbatol, a medication for epileptics; serious complications with the drug eventually led to lawsuits.

1999:

The first polyurethane condom, Trojan Supra, is introduced.

2000:

Henry Hoyt, Jr., retires.

Company History:

Carter-Wallace, Inc. is a diversified healthcare company that has exhibited a consistent knack for anticipating business trends. The company markets and makes toiletries, proprietary drugs, diagnostic specialties, pharmaceuticals, and pet products. Best known for such products as Arrid deodorant and Trojan condoms, Carter-Wallace has more recently emphasized its laboratories division, where work on various medications points the way to future profits.

The Late 1800s: Carter's Little Liver Pills

Carter-Wallace's roots can be traced back to the 1800s and a modest pill compounded by an Erie, Pennsylvania doctor for folks suffering from digestive distress. 'Carter's Little Liver Pills' first were advertised by a sign placed in Dr. John Samuel Carter's pharmacy window, but the pills' popularity soon spread beyond the capacity of the pharmacy's back room. By 1859 a four-floor plant had been built to produce the liver pills. Dr. Carter also had created other products, but it was the sales of the liver pills that led New York businessman Brent Good to suggest a merger to make a nationwide business. In 1880 Carter Medicine Company was born.

In its first year of business, the company spent a third of its revenues on advertising. Coupled with all the other start-up expenses, plus the move to New York, the first year ended in the red, but belief in the product remained strong. By its second year Carter was exporting to Canada and England and enjoying vigorous sales in the United States. By 1890 the company had already outgrown its new quarters and moved to larger ones. Soon imitators were popping up everywhere and an attorney was retained to battle the counterfeiters. With the loss in 1884 of Samuel Carter--the company's president and the son of the pill's inventor--Carter Medicine Company entered a new era.

The 1890s was a time of uncertainty and financial panic in the United States and Carter Medicine Company suffered along with nearly every other business. It was just recovering when another economic crash rattled the country in 1907. Companies stabilized again just in time for World War I to alter the global economy. What sustained the Carter Medicine Company through these times was the fact that Carter's Little Liver Pills had become such a staple household item. Meanwhile, the company continued to operate like many family-owned corporations. Brent Good passed the presidency on to his son Harry Good; Harry's brother-in-law, Charles Orcutt, later succeeded him. Another new era for the company was ushered in when Harry Hoyt, Sr., who was Orcutt's son-in-law, became managing director in 1929. Hoyt bought controlling interest in the company and instilled Carter-Wallace with his axiom that 'a business cannot stand still.'

Product Diversification Between the Wars

Hoyt's first order of business was to expand beyond the company's one profitable product, the liver pills. Creating new products meant risk and investment. It was difficult at first to convince trustees of his vision. Hoyt wanted to cut dividend payments and spend the money on the development of new products. While this struggle for change was taking place, the government dropped a blow: the Department of Agriculture contested the use of the word 'liver' on the pills' labels, since the pills were not really targeted for liver ailments. This was catastrophic for a product whose brand name had been familiar to households for more than half a century. In light of all the money it had invested in advertising and brand recognition, the company decided to fight to retain its brand name and, eventually, it won.

The Federal Trade Commission brought similar charges against the company in 1943. For 17 years the company battled in the courts to retain its name. The decision came back in 1959: 'liver' had to be dropped from all advertising. The product, whose name was known in every home and painted on the sides of barns across the country, was renamed Carter's Little Pills.

Meanwhile, Hoyt was pioneering research for new products even through the hardships of the 1930s. With so many Americans living hand-to-mouth during the Depression, few could afford liver pills, and sales sank. This only fueled Hoyt's determination to diversify. Research pointed to deodorants and antiperspirants. At the time there were two dominant brands in the United States, and each had a weakness: one was a stainless dry cream that was a deodorant only; the other a liquid antiperspirant that often stained clothes and irritated skin. The challenge became how to find a dry, stainless cream that could stop perspiration while deodorizing, yet not irritate the skin. A research chemist from Princeton, John H. Wallace, was tapped for the task. In 1935 the company launched the product that would soon outstrip its liver pills in sales and brand name recognition: Arrid.

Between an ad campaign that saturated the public and a product that really did meet consumer needs, Arrid became the largest selling deodorant in the United States. These two characteristics of the Arrid product became Carter-Wallace trademarks: the effective use of advertising, combined with a product that was developed instead of copied. To keep ahead of its many imitators and competitors, Arrid was constantly improved. The success of the deodorant soon led to the construction of a new plant in New Brunswick. Carter's sales topped the $1 million mark for the first time in 1935. To reflect its new direction, the company's name was changed to Carter Products, Inc., in 1937. For ten years, the original formula of Arrid was a top-seller. After that, various improvements were used to further boost sales.

Another innovation was a new depilatory product introduced in 1940. Designed primarily as a hair remover for women, Nair became another company success. During World War II Carter Products also produced foot powders for the armed forces. Indeed, through 1945, war work absorbed much of the company's attention.

The Prescription Drug Market in the 1950s

In 1949 another product innovation was unveiled: an aerosol shaving product named Rise that was the first pressurized shaving cream. The product's explosive popularity prompted many imitations, including a Colgate product so similar that Carter sued for infringement of patent rights. This case was won by Carter more than ten years later.

Attention turned to ethical drugs as the newest market. The company began to look at the development of prescription drugs. This led to another Carter-Wallace cornerstone, Miltown, a tranquilizer that was the first of its kind. It relaxed muscles and also relieved mental stress. Following its introduction in 1955, Miltown's sales doubled and tripled each of the subsequent five months. By 1958 Carter was again constructing a new plant to handle production demands.

Celebrating its 75th anniversary in 1955, Carter Products looked back on a remarkable record of growth. Its products were selling in 54 countries. Two years later, the company listed stock on the New York Stock Exchange. The company served as a sponsor of such radio programs as 'Amos 'n Andy' and 'Fibber McGee and Mollie' and was a pioneer among television advertisers, thus making Carter products familiar to millions.

When sales and profits took a plunge in the 1960--61 fiscal year, Carter claimed that one contributor was the fact that the company's patented meprobamate tablets--commercially known as Miltown--were being purchased abroad in violation of patent laws. When the United States brought antitrust charges against Carter Products, accusing it of creating a monopoly on meprobamate, the company contested the charge. After a year of hearings, the case was concluded and Carter won the patented right to be sole manufacturer of meprobamate. This victory was significant as it secured one of Carter's steady sources of income. Sales rebounded in the following year.

In 1961 Harry Hoyt, Sr., was named chairman of the board. A new product was released that same year, a muscle relaxant with the generic name carisoprodol and the brand name Soma. Although a success, Soma was no rival for Miltown. It did, however, signal further diversification. Carter soon purchased a majority interest in Frank W. Horner, Ltd., a Canadian drug company with sales of more than $5 million. Horner--a leader in drugs that dealt with diabetes, nausea, and antibiotics--would become one of Carter's most profitable outlets. About the same time, Carter acquired a 50 percent interest in Millmaster Chemical Corporation, a company with more than $10 million in sales.

The Wallace Laboratory division of Carter Products had compiled more than 13 product innovations by the mid-1960s. In 1965 the company name was changed to Carter-Wallace, Inc., a reflection of this division's importance to the firm. Arrid Extra Dry Anti-Perspirant Spray Deodorant was introduced in 1968. It was the only aerosol spray of its kind, another product revolution, and it quickly shot to the head of its market in sales, serving as a mainstay for the company in ensuing decades.

Having outgrown its executive offices, Carter-Wallace moved in 1968. Lambert Kay Company, a manufacturer of pharmaceutical and nutritional products for pets, was acquired around that time. By 1970 company sales topped $125 million. Although toiletries and proprietary drugs represented the largest percentage of sales, prescription drugs were becoming an increasingly substantial segment. At this juncture, the company was marketing 32 products at home and abroad and Wallace Laboratories was concentrating on three major groups of therapeutic agents: anti-inflammatory compounds, anti-arteriosclerotic compounds, and antihistamines. The company obviously had come a long way from the days when its staple product was Carter's Little Liver Pills. To keep ahead in the competitive pharmaceutical industry, Carter acquired majority interest in two research organizations: Industrial Biological Laboratories and the Laboratory for Analytical Blood Studies.

With the patent on meprobamate set to expire in 1972, Carter-Wallace concentrated on new income sources. As a result of a licensing agreement with Cameo, Inc. of Ohio, Carter-Wallace received the rights to manufacture and sell Pearl Drops. This liquid tooth polish was another one-of-a-kind product at the time. Sales were solid enough to prompt the company to purchase the product outright within three years.

Still, the many economic uncertainties of the 1970s had an impact on Carter-Wallace. A record profit drop came in 1974. Inflation, high energy and labor costs, and wary consumers all contributed to the downturn. During this period Carter-Wallace bought Princeton Laboratories Products Company, a manufacturer of diagnostic kits, for $10 million. This seemed a promising new field at the time. It proved to be even more lucrative than expected. One of Princeton's primary customers was the Wampole Division of Denver Chemical Company. Wampole led the country in sales of pregnancy tests, as well as diagnostic tests for rheumatoid arthritis, streptococcal infections, and mononucleosis. Adding Wampole to the Carter-Wallace roster required that Denver Chemical be acquired. Carter-Wallace made the purchase for $25 million.

While Hoyt, Sr., was chairman of the executive committee, his son, Harry Hoyt, Jr., became chairman of the board and CEO. Hoyt, Jr., had by that time been with the company for 25 years; his brother Charles had worked alongside him for 22 of those years.

A New Business: The Rise of Condom Sales in the 1980s

In 1976 earnings again fell dramatically. The plunge was, in large part, the result of publicity regarding the dangers of aerosol emissions. Carter-Wallace fought back with aggressive advertising and promotional expenditures. Closing in on its 100th birthday, the company began to feel an improvement in its financial health. In 1979 it purchased the Pharmaceutical Products Division of Mallinckrodt, Inc., which specialized in cough and cold medications, antihypertensives, and diuretics.

The 1980s were another era of explosive growth for the company. In 1985 Carter-Wallace acquired Youngs Drug Products Corporation, the privately held maker of Trojan-brand condoms. It was Carter-Wallace's first foray into that industry. With the advent of the contraceptive pill and IUDs in the 1960s, condoms had become a relic of a method of pregnancy prevention. During the 1970s the pill and penicillin were the preferred guardians against pregnancy and venereal disease. When Carter-Wallace began manufacturing Trojans, condom sales had dropped to half of what they had been in the previous ten years. But within less than a year of the acquisition, condoms were being cited as the only known protection against the sexual transmission of AIDS. Condoms quickly became an omnipresent topic in the media. Sales soared and Trojan--a longtime brand on the market&mdashcounted for about 55 percent of the sales.

It was a revolution both in the country and for the company. Condoms had long been associated with illicit sex and prostitution, relegated to vending machines or beneath-the-counter sales in pharmacies. By 1986, however, condoms were widely available, displayed openly in retail stores and even supermarkets. First-time buyers accounted for a great amount of the increase; in fact, women were buying about 50 percent of condoms sold in 1986. With the AIDS epidemic dominating the public's attention, condom sales were assured even without advertising, but Carter-Wallace took an early lead in magazine advertising anyway, committing itself to a multimillion-dollar ad campaign early in the AIDS information explosion. In an industry where brand loyalty is high, the Trojan brand led the way in sales, followed by Ramses and Sheik brands, both made by the same company, Schmid. In 1988 Carter-Wallace bought Mentor's condom business, which, combined with Trojan, gave it about 62 percent of the market. Carter-Wallace claimed that its condom products accounted for about ten percent of its sales and 15 percent of its earnings in 1987.

The bulk of the company's revenue at that time was derived from the sale of deodorants and prescription drugs. Drug sales were growing at four percent a year, increasing from $152 million in 1983 to $209 million in 1987. This division accounted for nearly half of company sales in 1987. Although the lucrative patent protection of Miltown had expired, Carter-Wallace had established an effective strategy of licensing foreign drugs and bringing them into U.S. markets. Dwarfed in size by some of its competitors in this field, Carter-Wallace focused more on solid products with steady sales than on the discovery of cutting-edge drugs.

Antiperspirants were still the company's largest consumer division in 1987. While sales of Rise and Pearl Drops fell in the face of increased competition from rivals, sales of Sea & Ski suntan lotion and Answer pregnancy tests bloomed. Sea & Ski was another example of the company's ability to spot growth industries before they became unaffordable. Pregnancy testing kits also became a boom product in the late 1980s. By 1990 home pregnancy test manufacturing had become a $100 million industry. The year prior, Carter-Wallace had acquired Hygeia Sciences, Inc., a subsidiary of Tambrands Inc. and the producer of First Response, the number one selling brand of home pregnancy tests. Carter-Wallace's own Answer product was at that time the fourth ranked kit in terms of market share; coupled with First Response, Carter-Wallace was able to secure a 31 percent share of the market. In 1989 drugstore sales of tests rose nearly 30 percent, and supermarket sales were on the rise as well. The trend was attributed to the increased interest in self-healthcare, plus the increased reliability of the tests. With First Response, Carter-Wallace shifted the product's pitch for the first time to young women who might not want to be pregnant, especially college students, while also maintaining traditional ads aimed at the 50 percent of test users who, according to market research, wanted to be pregnant. With a new market niche within an expanding market, Carter-Wallace was again just ahead of the trends.

By the end of 1990, the company had shifted its strategy slightly and increased its research and development spending by 20 percent over the previous year; the company further claimed that it would increase spending in this area by another 20 percent in 1991. Carter-Wallace tested drugs for the treatment of such ailments as epilepsy, asthma, and angina. Consumer goods and drugs are fairly recession-proof industries. The company seemed on solid footing. Carter-Wallace purchased Dramamine, a motion sickness product, from Procter & Gamble Company in 1991. Sales of the well-established brand were then about $13 million.

Earnings declined despite a rise in sales in early 1992, because of R & D outlays. Meanwhile, Trojan condoms increased its stranglehold on the condom industry; it gained 60 percent of market share, with sales still on the increase. In July 1991 the FDA seized 1.2 million Trojan brand natural-membrane condoms, contending that the lambskin condoms were not effective protection against sexually transmitted diseases and that the condom labels did not note this. Carter-Wallace argued, however, that it was in the process of complying with relabeling the condoms in the wake of the discovery that only latex condoms had pores small enough to prevent transmission of diseases.

In November 1991 Fox Broadcasting Company broadcast an advertisement for the Trojan brand, thus becoming the first national broadcast television network to run a condom commercial. Condom spots had run on some local and cable stations, but this national ad was a ground-breaker. It came on the heels of basketball great Magic Johnson's announcement that he would retire after testing positive for HIV, the virus associated with AIDS. Just when ad and sales plateaus had seemed to be reached in this area, the news of Johnson's test results triggered another jump in condom sales. Between 1985 and 1991, condom sales worldwide more than doubled.

Buyout Scares in the Late 1990s

In late 1991 there was much speculation about Carter-Wallace's soon-to-be released drug felbamate, a drug that controlled epileptic seizures. Sales were projected to be $100 to $200 million annually. In 1992 Schering-Plough Corporation signed an agreement with Carter-Wallace for marketing rights for felbamate outside of North America. The drug, known by the brand name Felbatol, received FDA approval in the summer of 1993 and was introduced into the marketplace in August of that year. An aggressive marketing campaign followed, with claims that the new drug eliminated the need for epileptics to monitor their blood on a regular basis. Initial reviews of the drug's efficacy were extremely positive, and by mid-1994 more than 100,000 patients had converted to Felbatol.

During this same period, however, Carter-Wallace began to receive reports of serious problems relating to the use of the drug. Data revealed that a number of Felbatol patients were contracting aplastic anemia, a rare blood disease, and that there were several cases of serious liver damage arising from use of the drug. The first Felbatol-related death occurred in January 1994; by August a total of ten deaths had been reported, and the company, along with the FDA, was compelled to issue a warning letter to more than 240,000 physicians nationwide, recommending that they cease administering the drug to the majority of their patients. Although the overall effectiveness of the drug, particularly with patients who had failed to respond to other treatments, remained undisputed, the news of the side effects significantly curtailed the product's market growth, and by the end of 1995 only 10,000 patients were still using it. In December 1995, a class action lawsuit was filed against Carter-Wallace, on behalf of everyone who had ever taken Felbatol. This litigation followed two other lawsuits filed by shareholders of the company in 1994, charging that Carter-Wallace had deliberately made false claims about both Felbatol's medical value and its sales potential.

In March 1995 the company reported a net loss of $56.3 million for the previous fiscal year, and its stock dropped to $14 a share, a more than 50 percent drop from a high of $31 posted in 1993. The setbacks could be traced to the large scale of the company's investment in Felbatol, coupled with inadequate marketing for its other products during the period of the new drug's development. By the following year a massive restructuring of the company became inevitable. Carter-Wallace reduced its workforce by more than a thousand employees in early 1996, in addition to announcing plans to shut down its condom manufacturing operations in Trenton, New Jersey, which would cut an additional 625 jobs. With its drastically reduced stock prices, the company became a target for a takeover; in October 1996, businessman Marvin Davis made a bid of $835 million for the company.

Chairman Henry Hoyt, Jr., however, was bitterly opposed to selling Carter-Wallace, and he used his leverage as a majority stakeholder to block the deal. The company then turned its attention to gaining substantial market share for a number of its new products. In 1996 Wallace Laboratories introduced ASTELIN, a prescription nasal spray that treated seasonal allergic rhinitis. The antihistamine received FDA approval in November 1996 and hit the market the following March. In June 1999 Wampole laboratories launched a new diagnostic that aimed to become the first rapid response testing method for Lyme's disease. The company was buoyed further by an appeals court ruling in July 1998 that determined that no investor fraud had taken place in connection with the marketing of Felbatol.

The company's most successful product development, however, arrived with the introduction of the Trojan Supra condom in September 1999. The first polyurethane condom, the Trojan Supra brand contributed to record condom sales in the fiscal year ending March 31, 2000, when Carter-Wallace was able to claim a 68 percent market share of the domestic condom business. Overall, the company saw its earnings rise 55 percent in 1999, with net income surpassing $43.3 million. It was in the midst of this resurgence that, in December 2000, Henry Hoyt, Jr., stepped down from his position as chairman of Carter-Wallace, after more than 50 years with the company.